Does CleanBnB (BIT:CBB) use too much debt?

Legendary fund manager Li Lu (whom Charlie Munger once backed) once said, “The biggest risk in investing is not price volatility, but whether you will suffer a permanent loss of capital. So it seems smart money knows that debt – which is usually involved in bankruptcies – is a very important factor when you’re assessing a company’s risk. Above all, CleanBnB SpA (BIT:CBB) is in debt. But the more important question is: what risk does this debt create?

When is debt dangerous?

Debt helps a business until the business struggles to pay it back, either with new capital or with free cash flow. In the worst case, a company can go bankrupt if it cannot pay its creditors. Although not too common, we often see companies in debt permanently diluting their shareholders because lenders force them to raise capital at a ridiculous price. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution in a business with the ability to reinvest at high rates of return. The first step when considering a company’s debt levels is to consider its cash and debt together.

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What is CleanBnB’s debt?

As you can see below, CleanBnB had 3.61 million euros in debt in June 2022, compared to 3.78 million euros the previous year. But on the other hand, he also has 8.40 million euros in cash, which leads to a net cash of 4.78 million euros.

A Look at CleanBnB’s Responsibilities

According to the last published balance sheet, CleanBnB had liabilities of 7.85 million euros maturing within 12 months and liabilities of 859.7 k€ maturing beyond 12 months. In return, it had €8.40 million in cash and €397.3 thousand in receivables due within 12 months. These liquid assets therefore roughly correspond to the total liabilities.

Considering the size of CleanBnB, it seems its cash is well balanced with its total liabilities. So while it’s hard to imagine the €9.78m company struggling to find cash, we still think it’s worth keeping an eye on its balance sheet. In short, CleanBnB has a net cash position, so it’s fair to say that it doesn’t have a lot of debt! The balance sheet is clearly the area to focus on when analyzing debt. But ultimately, the company’s future profitability will decide whether CleanBnB can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.

Over 12 months, CleanBnB achieved revenue of €6.5m, a gain of 170%, although it did not report earnings before interest and taxes. Its fairly obvious shareholders therefore hope for more growth!

So how risky is CleanBnB?

While CleanBnB lost money in earnings before interest and tax (EBIT), it actually generated positive free cash flow of €2.4 million. So taking that at face value and given the net cash position, we don’t think the stock is too risky in the near term. We think its 170% revenue growth is a good sign. We would see strong new growth as an optimistic indication. The balance sheet is clearly the area to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist outside of the balance sheet. Example: we have identified 2 warning signs for CleanBnB you should be aware.

If, after all that, you’re more interested in a fast-growing company with a strong balance sheet, check out our list of cash-flowing growth stocks without further ado.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.